Commissioner v Lingayen Gulf Electric (1988)

Commissioner v Lingayen Gulf Electric GR No L-23771, August 4, 1988

FACTS:
Lingayen Gulf Electric Power operates an electric power plant serving the
municipalities of Lingayen and Binmaley, Pangasinan, pursuant to municipal
franchise granted it by the respective municipal councils. The franchises provided
that the grantee shall pay quarterly to the provincial treasury of Pangasinan 1% of
the gross earnings obtained through the privilege for the first 20 years (from 1946)
and 2% during the remaining 15 years of the life of the franchise. In 1955, the BIR
assessed and demanded against the company deficiency franchise taxes and
surcharges from the years 1946 to 1954 applying the franchise tax rate of 5% on
gross receipts from 1948 to 1954. The company asked for a reinvestigation, which
was denied. CTA, however, ruled for Lingayen. Hence, this petition.

ISSUES:
1. Whether the Court can inquire into the wisdom of the franchise
2. Whether a rate below 5% is violative of the uniformity clause in the
Constitution

RULING:

1. No, the Court does not have the authority to inquire into the wisdom of the
Act. Charters or special laws granted and enacted by the legislature are in
the nature of private contracts. They do not constitute a part of the
machinery of the general government. Also, the Court ought not to disturb
the ruling of the Court of Tax Appeals on the constitutionality of the law in
question.

2. No. The legislature has the inherent power not only to select the subjects of
taxation but to grant exemptions. Tax exemptions have never been deemed
violative of the equal protection clause. Herein, the 5% franchise tax rate
provided in Section 259 of the Tax Code was never intended to have
universal application. Section 259 expressly allows the payment of taxes at
rates lower than 5% when the charter granting the franchise precludes the
imposition of a higher tax. RA 3843, the law granting the franchise, did not
only fix and specify a franchise tax of 2% on its gross receipts but made it in
lieu of any and all taxes, all laws to the contrary notwithstanding. The
company, hence, is not liable for deficiency taxes.

THE COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
LINGAYEN GULF ELECTRIC POWER CO., INC. and THE COURT OF TAX
APPEALS, respondents.
Angel Sanchez for Lingayen Electric Power Co., Inc.
Ponente: SARMIENTO
FACTS:
The respondent taxpayer operates an electric power plant serving the adjoining
municipalities of Lingayen and Binmaley, both in the province of Pangasinan,
pursuant to the municipal franchise granted it by their respective municipal
councils, under Resolution Nos. 14 and 25 of June 29 and July 2, 1946,
respectively. Bureau of Internal Revenue (BIR) assessed against and demanded
from the private respondent deficiency franchise taxes and surcharges for the
years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts from
March 1, 1948 to December 31, 1954 as prescribed in Section 259 of the
National Internal Revenue Code, instead of the lower rates as provided in the
municipal franchises. Respondent submits that R.A. No. 3843 is unconstitutional
insofar as it provides for the payment by the private respondent of a franchise tax
of 2% of its gross receipts, while other taxpayers similarly situated were subject
to the 5% franchise tax imposed in Section 259 of the Tax Code, thereby
discriminatory and violative of the rule on uniformity and equality of taxation.
Court of tax Appeals ruled in favor of respondent.

ISSUE:
Whether or not Section 4 of R.A. No. 3843, assuming it is valid, could be
given retroactive effect so as to render uncollected taxes in question which
were assessed before its enactment.

HELD:
YES. Appealed decision was affirmed.

RATIO:
A tax is uniform when it operates with the same force and effect in every place
where the subject of it is found. Uniformity means that all property belonging to
the same class shall be taxed alike The Legislature has the inherent power not
only to select the subjects of taxation but to grant exemptions. Tax exemptions
have never been deemed violative of the equal protection clause. It is true that
the private respondents municipal franchises were obtained under Act No. 667 of
the Philippine Commission, but these original franchises have been replaced by
a new legislative franchise, i.e. R.A. No. 3843.
Given the validity of said law, it should be applied retroactively so as to render
uncollectible the taxes in question which were assessed before its enactment.
The question of whether a statute operates retrospectively or only prospectively
depends on the legislative intent. In the instant case, Act No. 3843 provides that
“effective … upon the date the original franchise was granted, no other tax and/or
licenses other than the franchise tax of two per centum on the gross receipts …
shall be collected, any provision to the contrary notwithstanding.” Republic Act
No. 3843 therefore specifically provided for the retroactive effect of the law.